August saw the US's most drastic action, restricting the
Venezuelan government's access to the US financial system,
preventing it and the state
oil company, PDVSA, from issuing new debt in US dollars.

Despite these actions, there are more Venezuelan officials who
could be hit with sanctions, and the US is likely to go after
them, according to Mark Feierstein, who was senior director for
Western Hemisphere affairs on President Barack Obama's National
Security Council.

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"I think we can expect them to
sanction more individuals. Venezuela is a target-rich
environment," Feierstein said at a December 12 event at the
Americas Society/Council of the Americas in New York City. "If
you're looking for senior officials engaged in corruption or
rights abuses, there are plenty more people that can be
targeted."

Trump's financial sanctions fell
short of hints Washington could impose an oil embargo, which
many warned would be a step too far. But the administration's
actions, along with individual sanctions, appear to have had
mixed effects, and there are now signs that deepening them in an
effort to isolate Maduro or boost his opposition could
backfire.

Hitting 'the core of how PDVSA works'

caption

Venezuelan President Nicolas Maduro at the Simon Bolivar airport in La Guaira.

source

Thomson Reuters

"I think the sanctions have
affected more than the government expected and than even I
expected," Francisco Monaldi, a Venezuelan energy expert at Rice
University, said during an event at Columbia University on
December 4. "In the sense that even though [the sanctions] were
relatively limited, they have been triggering a lot of
difficulties in the [government's] business dealings [and] in
their partners in the oil industry."

Disruptions in Venezuela's oil
industry can have outsize impact on the country, as oil brings in
about 95% of its export
revenue, which has been used to purchase imports like food and
medicine as domestic production dries up.

Doing business was already
challenging in Venezuela, and a number of international firms had
shuttered or withdrawn their interests in the country in the
months prior to Trump's actions. But the effects of the current
sanctions go beyond reputational risks, said Luisa Palacios, the
head of Latin America at advisory firm Medley Global
Partners.

Because of PDVSA's habit of
paying late, sanctions that limit its ability to issue debt hit
the "core of how PDVSA works, which is with arrears," or payments
made on debt, Palacios said at the Columbia event.

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A woman walks past an empty section where toilet paper should be on display in a supermarket in Caracas, May 17, 2013.

source

Reuters

The sanctions have also
accelerated "the problems that PDVSA and Venezuela were already
having at accessing the international payments system" because of
issues like corruption and misdealing that had turned off banks
and other business partners, according to Palacios.

"So the sanctions have
just elevated significantly the risk of any counterparty of
dealing with Venezuela, because then you have to check whether
are you going to be in violation of sanctions," she said.

The deleterious effect the sanctions have had on PDVSA's
operating capacity may also exacerbate mismanagement and
underinvestment issues that plague the company and have led to a
considerable decline in oil production, according to Francisco Rodriguez, the chief economist at Torino
Capital.

"I'm really concerned that we're
going to have a real collapse in Venezuela in oil production over
the course of the next year," which would in turn affect the
government's ability to pay its debt, Rodriguez - who was head of
the Venezuelan Congressional Budget Office from 2000 to 2004 -
said at the AS/COA event. "It's the perfect storm hitting PDVSA,
in an economy that depends completely on what PDVSA
produces."

A variety of factors, like
regulations, exchange and price controls, and insecurity would
inhibit the broader Venezuelan economy's ability to respond in
the event oil income dried up, Rodriguez added.

"So you're really likely going to
have an economy where you can get its only source of revenue
collapse and nothing else come to replace it. I think that that
could lead us to a very bad year" in 2018.

Problems for the US, problems for the opposition

While there are indications that
economic sanctions are having an effect, signs of the hoped-for
political outcome - creating fissures in Maduro's base of support
- haven't appeared.

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Demonstrators clash with security forces at a rally during a strike against Venezuelan President Nicolas Maduro's government in Caracas, July 26, 2017.

source

Thomson Reuters

Feierstein, who said he was
supportive of sanctions, said their impact had been
disappointing. "There's obviously the threat [of sanctions]
against others, but ... it's surprising, to me at least, how few
people have broken with Maduro," he said during the AS/COA
event.

Maduro's government has had
success sidelining the country's political opposition,
circumventing the opposition-controlled legislature, securing
electoral victories with the help of
fraud and dirty tricks, and working to block main opposition
parties from future elections. (The opposition is also
hindered by its own divisions.) He's also
marginalized opposition within
his own political sphere, in part by purging potential rivals
from PDVSA, though their ouster could further erode the firm's
health.

Maduro's approval has also
hovered around 20% over the past two years, which is not high,
but is noteworthy in light of the turmoil in Venezuela over that
time. At the end of October, one poll showed his approval
at 31% - the highest since early 2015. That position may help him
marshal public sentiment against additional economic
sanctions.

caption

Venezuelan government and opposition representatives in Santo Domingo, Dominican Republic, December 2, 2017.

source

Thomson Reuters

A Datanalisis poll Rodriguez
cited found 56% of Venezuelans opposed US financial sanctions and
just 32% supported them.According to that poll, about half of the
respondents who self-identified with the opposition were against
sanctions.

"I think that we have pretty
consistent public-opinion evidence right now that sanctions are
unpopular in Venezuela," Rodriguez said, "And ... I think it's
creating a problem for the US [and] creating problems for the
Venezuelan opposition."

Maduro's government has brought
up sanctions during negotiations with the opposition in the
Dominican Republic, making their removal a precondition for any
agreement. (The government has been criticized for using talks as
a stalling tactic.)

That demand was not a
coincidence, Rodriguez said, "because they're going to use
every opportunity that they have to tell Venezuelans the reasons
why you're undergoing all these difficult times right now have to
do with sanctions and furthermore the fact that the opposition
lobbied for them means that the opposition doesn't care about
Venezuelans."

How Venezuela's ongoing economic
deterioration shapes public sentiment remains to be seen. But
with evidence current sanctions lack public support, Rodriguez
said he thought the country's opposition "would feel quite
uncomfortable with an escalation of the economic sanctions. I
think that they would feel that it would hurt the Venezuelan
opposition more than help them."

"So there's some good risk that
that the whole sanctions strategy may backfire," he said.